28 November Trading update for the three months ended 30 September Group overview and operational highlights

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1 28 November 2013 Update is a newsletter produced by the investor relations department of MMI Holdings Limited. It provides information on the different divisions in the group. Contact Natalie Amos (investor relations) on (021) / namos@mmiholdings.co.za for further information. MMI MMI Holdings Limited MMI HOLDINGS LIMITED Incorporated in the Republic of South Africa) Registration number: 0/031756/06 ISIN Code: ZAE JSE Share Code: MMI NSX Share Code: MIM ("MMI" or "the company") Trading update for the three months ended 30 September 2013 Group overview and operational highlights Total new business recurring premiums increased by 26% compared with the same quarter of the prior year, reflecting the strength of the diverse distribution channels and the alignment of the comprehensive product offerings in the group with their respective target markets. Strong single premium inflows continued, ending 12% higher than the comparative quarter; a period which included exceptional flows in the employee benefits division. Overall, very good client retention was experienced across the group. A number of growth initiatives have commenced; the benefits of which will only emerge in future reporting periods. The group has further strengthened internal resources, and good progress has been made in building new system capabilities in the shortterm insurance operation. The group has substantially completed the merger integration phase and is transforming from an integration focus to a growth focus. Acquisitions The acquisition of Guardrisk, a cell captive provider of tailored risk solutions was announced earlier this month. The purchase price of R1.6 billion will be funded out of MMI s existing capital resources. The transaction is subject to regulatory approvals In addition, the recently announced acquisition of Providence Healthcare Risk Managers will strengthen Metropolitan Health s position as the country s largest healthcare administrator. A number of growth opportunities are being pursued across the group, including acquisitions in Africa. 1

2 Market conditions and environment The group is operating in a highly competitive market with ongoing pressure on clients disposable income. The need for and importance of investment and protection products within MMI s client base remains an integral part of their financial planning and wellness. Investment markets, while volatile, continue to be strong. Momentum Retail * Recurring premiums Single premiums Annual premium equivalent (APE) Present value of premiums (PVP) * Momentum Retail includes Odyssey but excludes new markets and FNB Life. * Covered business includes onbalance sheet business only. Momentum Retail recurring Momentum Retail single The upperincome risk market continues to be very competitive. volumes (PVP) for the quarter were 32% higher than those recorded in the prior year. Single premium new business surprised on the upside ending 45% higher as a result of very strong structured product premium flows. The mix of new business continues to favour single premium investments. Client service remained at very satisfactory levels. Good mortality experience continued during the quarter. The benefits from increased brand awareness activities are starting to emerge. 2

3 Metropolitan Retail # Recurring premiums Single premiums Annual premium equivalent (APE) Present value of premiums (PVP) # Metropolitan Retail includes new markets and FNB Life (2011/2 10%; % from 1 July 2013), but excludes Odyssey. Metropolitan Retail recurring Metropolitan Retail single Good recurring premium new business was recorded, ending 12% higher than September 2012, highlighting the benefits achievable through market segmentation. The reduction in the profitshare agreement with FNB Life from 10% to 4% (effective 1 July 2013) has resulted in a lower contribution from this channel to recurring new business and to the value of new business. Excluding new business from FNB Life, strong recurring premium growth of 19% was recorded from the other distribution channels. Single premium income performed very well delivering a 24% increase for the quarter. Early duration persistency remained at acceptable levels. The process and systems renewal projects are proceeding as planned. Expenses were well managed during the period under review. Excellent clientservice levels continued as confirmed by the AskOrange index while the Metropolitan brand strength moved up from 4 th to 2 nd position in the Sunday Times brand survey. 3

4 Momentum Employee Benefits Recurring premiums > Single premiums (35) Annual premium equivalent (APE) Present value of premiums (PVP) Momentum Employee Benefits recurring Momentum Employee Benefits single Good recurring premium new business was recorded in the first quarter, particularly in the umbrella fund space, resulting in recurring premium new business of more than twice the level recorded in the prior comparative for the division as a whole. Following the record levels of single premiums received in the prior year, strong single premium production was again written during this period. Securing new business in the group insurance and investment markets remains highly competitive. Client retention remains at good levels. Expense efficiency initiatives are continually being implemented. The Momentum Health open scheme, which is now part of the Momentum Employee Benefits division, continues to provide an attractive offering to clients, increasing membership over the period while further strengthening the reserves in the scheme. 4

5 Metropolitan International Recurring premiums Single premiums (incl EB) Annual premium equivalent (APE) Present value of premiums (PVP) Health membership ( 000)# includes MMI s share of life insurance new business written by all Metropolitan International subsidiaries. # Health membership includes Namibia Metropolitan International recurring Metropolitan International single Good new business volumes were recorded in Namibia, Lesotho and Swaziland during the period under review. Strong single premium production was experienced in Botswana. The medical claims ratio has remained at satisfactory levels. Expense management initiatives are being implemented. A number of growth initiatives are being pursued or are in the process of being implemented. Momentum Investments Institutional and retail interest on the back of continued strong investment performance in our Momentum Africa product is yielding positive net inflows. The Momentum Balanced Fund unit trust investment performance ended either top or second quartile over 3 months and 1,3 and 5 years. Institutional core equity mandates have been committed on the back of equity fund performance. The measurement of the unconstrained strategies team s institutional performance commenced at the beginning of the quarter and significant alpha in the domestic equity and global contrarian fund performances has been realised. On the back of increased market levels, performance fees and controlled costs, the Momentum Investment division s costtoincome ratios improved for the quarter. 5

6 The longer term outlook for the investment management business in general remains positive, but earnings will be dependent on the levels and mix of assets under management, as well as expense ratios. Building competitive investment management capabilities for the MMI group as well as third parties remain core to the growth strategy. Metropolitan Health Further growth, albeit slower, was recorded in the Government Employees Medical Scheme. Despite losing the administration contracts on a few smaller schemes the business is confident that the key administration and managed care contracts will be successfully renewed. Good progress has been made with the strategic repositioning of the health risk management business and the rollout of the Multiply rewards programme. Business efficiency initiatives remain on track. The business continues to position itself for industry consolidation and health reform. Opportunities and challenges MMI is an extremely well diversified financial services group with scale in all the established operations. Merger synergies will continue to emerge as projects are completed. Crossselling and other new business opportunities are being pursued across the group. Growth in new business volumes will, however, remain dependent on the economic environment, including a recovery in employment and stronger disposable income levels. Comments / qualifications End All figures contained in this trading update have not been reviewed or reported on by the Company s auditors and are for the period 1 July to 30 September 2013 as presented in the current internal management accounts. The basis on which the new business figures have been calculated is the same as that used for embedded value purposes. Premium income is included from the date on which policies come into force as opposed to the date on which they are accepted. The new business figures are all net of outside shareholder interests. Queries NICOLAAS KRUGER PRESTON SPECKMANN TYRREL MURRAY GROUP CHIEF EXECUTIVE GROUP FINANCE DIRECTOR GROUP FINANCE & INVESTOR RELATIONS MMI Holdings MMI Holdings MMI Holdings TEL TEL TEL OR Centurion 28 November 2013 Sponsor in South Africa Merrill Lynch South Africa (Pty) Ltd 6